Copart: Junk to Gold

"Earn a PhD in Common Sense"

– Willis Johnson, Founder of Copart

arvy's teaser: From rags to riches. Willis Johnson, a talented fanatic and founder of Copart, turned a single scrap yard into a $47 billion empire. His common sense and relentless focus on innovation and customer service propelled Copart to become the market leader in online vehicle auctions.

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Junk cars.

Have you ever thought about a business model in this context?

In 1982, Willis Johnson decided it was a good idea and started with a single scrap yard in California.

Four decades later, his company Copart is the market leader in online vehicle auctions. The company buys and sells used and salvage vehicles. Every day, Copart auctions more than 175,000 vehicles from over 200 scrap yards, and every five seconds a car is sold to over 190 countries. The company is not only still in the hands of the founder himself but has also been in family hands for years.

Charlie Munger once said of Johnson that he was nothing less than, guess what?

A "talented fanatic".

Chart 1: Copart founder Willis Johnson with the CEO and his son-in law Jay Adair

Source: Quartr

Founder-led

Companies run by founders offer great potential for a significant success story (chart 2).

The story of Willis Johnson and his company Copart should be on every entrepreneur's radar. An aspiring young American entrepreneur who went from rags to riches.

He is a street-smart guy - underpinned by his clear words that you should earn a PhD in common sense - and fueled by a fire in his eyes that is not afraid to embrace new technology if it means greater efficiency and better customer service. He unashamedly copied ideas from everywhere: competitors, other industries and even Disneyland. Ultimately, he turned a small junkyard into a $47 billion empire.

He even wrote a book about it called "Junk to Gold" (chart 2 again).

He is the epitome of a founder.

Today, Willis still owns 5.7% of the company and his son-in-law Jay owns 3.4%. Most importantly, his consistent leadership and long-term focus have played a key role in Copart's success since its founding in 1982.

Why?

We can trace it back to the way the founder built the company from the inside out. The DNA. It affects everything. It will influence the success of the company on the outside for a long time.

Chart 2: Founder-Led Companies Outperform the Rest (based on S&P 500)

Source: Bain & Company, Harvard Business Review, Copart (book)

Market Leader in a Duopoly

Think of AutoScout24. It is more than natural for you to go to a website and look at pictures and details of cars to buy one.

That was not the case 40 years ago.

One of the main reasons why Copart gained market share quickly in the beginning and became so successful was the early adoption of the internet and technology next to customer service.

Would you believe they were the first car auction site with pictures!

Johnson wanted to make buying and selling cars faster and more efficient. Meaning you need pictures and details instead of going to a junkyard, paying admission, and having to walk long distances for hours, not to mention eating and drinking there.

And now you know what he copied from Disneyland back in the 80s. He basically created business areas (entrance fee, restaurants, and gift shops) around his main business.

Common sense, isn't it?

Today Copart is the largest marketplace of its kind in the world with a 43% market share in the US. Its nearest competitor IAA (a private company) has a 40% share.

Together they form a duopoly.

How do they make money?

Chart 3: Copart’s Marketplace

Source: Quartr

All-inclusive

The business model is very simple.

The American company earns its money from fees charged to both buyers and sellers who participate in its online auctions (chart 3):

• Sellers such as insurance companies, salvage yards, and individuals, enlist Copart's services to auction off damaged or surplus vehicles. Copart charges sellers listing fees and a percentage of the final sale price.
• Buyers, including automotive dealers, dismantlers, and the general public, pay a buyer's premium on top of the winning bid.

Turning junk into gold suddenly sounds interesting, doesn't it? But how can they keep customers happy with such fees?

Copart not only offers a digital marketplace, but also takes care of everything related to the transaction. It's like an all-inclusive wellness hotel where you do not have to worry about anything.

The founder and his family will take care of everything.

After all, it is all about efficiency and customer care.

Chart 4: Copart over 10 years

Source: TradingView